Asset reconstruction business-striking synergy

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: The concept of asset reconstruction business is of recent origin. Its genesis is rooted in the collective policy response to the problem of huge stock of non-performing assets (NPAs), nestling in the country’s financial asset pool covering the entire spectrum, wholesale & retail, across all sectors. Waste formation in the financial system ultimately manifesting as NPAs is natural phenomenon; only its degree of accumulation may vary with changes in the economic & financial ambience, external & internal. One of the challenges before the various players dotting the financial space is to ensure that this contagion of impairment does not impact its overall health. Quarantining these assets and transferring them to an institutional platform like Asset Reconstruction Companies (ARCs) has been perceived to be a viable option answering to this tough challenge. The necessary legislative, regulatory and other policy framework was put in place as a result, paving the way for the creation of ARCs.

Presently there are four ARCs actively engaged in this business. Leading the pack is Asset Reconstruction Company of (India) Limited (Arcil) the outfit promoted by the country’s financial behemoths like PNB, SBI, IDBI Bank & ICICI Bank, accounting for as much as 80% of market share (The past year it acquired assets of Rs. 27,000 Cr from 39 lenders, resolved 334 cases covering total dues of Rs. 15,600 Cr and recovered & distributed amount of Rs. 1,900 Cr). It’s footprints across the whole business spectrum is getting firmer with the passage of time which is likely to continue at least in the foreseeable future.

Asset reconstruction business constitutes essentially in unlocking the values embedded in the NPAs and sharing these in an equitable manner with various stakeholders. Theoretically, this is tailor-made for the common weal of all the concerned players and by now the market should have been abuzz with frenetic action on this front. If this not happened on the scale anticipated, the reasons can be the following.

* The concept is relatively new and its philosophy and practice have not seeped firmly in the minds of the players, especially the lenders. With the fear of the unknown stalking their minds, they are understandably wary of taking the kind of plunge that is necessary for giving a discernable fillip to this business.